Preferred Bank Reports Third Quarter Results

company logo

LOS ANGELES, Oct. 22, 2013 (GLOBE NEWSWIRE) -- Preferred Bank (Nasdaq:PFBC), an independent commercial bank focusing on the Chinese-American and diversified California mainstream market, today reported results for the quarter ended September 30, 2013. Preferred Bank ("the Bank") reported net income of $5.0 million or $0.37 per diluted share for the third quarter of 2013. This compares to net income of $2.8 million or $0.21 per diluted share for the third quarter of 2012 and compares to net income of $4.3 million or $0.32 per diluted share for the second quarter of 2013. Net income on a year-to-date basis was $13.3 million or $0.99 per diluted share for 2013 compared to net income of $19.0 million or $1.41 per diluted share for the same period last year. Year-to-date results for 2012 were aided by a $20.2 million reversal of the Bank's valuation allowance on its deferred tax asset. Highlights from the quarter:

  • Quarterly net income reached $5.0 million
  • Linked quarter loan growth was $61.2 million
  • Net interest margin rebounded to 4.10%.
  • ROA of 1.20%
  • ROE of 10.11%
  • Continued reduction of non-performing assets (NPA's) excluding loans held for sale, which now comprise only 1.4% of total assets
  • Efficiency ratio declined to 46.6%

Li Yu, Chairman and CEO commented, "For the third quarter, our Bank earned $5.0 million or $0.37 per diluted share compared to $4.3 million or $0.32 perdiluted share for the second quarter of 2013 and compared to $2.8 million or $0.21 per diluted share for the third quarter of 2012. This is by far the best quarter of the last five years and we are pleased to report this.

"Our growth continues. Total loans increased by $61.2 million or 5.0% over the prior quarter and deposits increased $37.9 million or 2.6%. Meanwhile total NPA's, excluding loans held for sale, decreased by $6.6 million or 22% from June 30, 2013 and equally as important, costs related to NPA resolution were negligible.

"Although we have been increasing staff this quarter, particularly in the area of compliance, our efficiency ratio came in at 46.6% which we are very pleased with.

"Our loan pipeline remains stable, although fourth quarter production will definitely be affected by the holiday season. We, however remain optimistic of our full year results."

Operating Results

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $16.5 million from the $13.3 million recorded in the third quarter of 2012 and an increase over the $14.4 million recorded in the second quarter of 2013. The increase over 2012 is due primarily to loan growth and the increase over the prior quarter was partially due to the $745,000 in interest reversals in the second quarter related to the regulatory examination. The Bank's taxable equivalent net interest margin was 4.10% for the third quarter of 2013, a 22 basis point increase from the 3.88% achieved in the third quarter of 2012 and a 25 basis point increase over the 3.85% recorded in the second quarter of 2013.

Noninterest Income. For the third quarter of 2013, noninterest income was $213,000 compared with $667,000 for the same quarter last year and compared to $718,000 for the second quarter of 2013. Noninterest income was negatively impacted this quarter by a loss on sale of securities of $497,000 as the Bank looks to reduce duration exposure. Service charges on deposits and trade finance income were both up in the third quarter compared to last year but were both down from the levels recorded in the second quarter of 2013.

Noninterest Expense. Total noninterest expense was $7.8 million for the third quarter of 2013, compared to $9.1 million for the same period last year and $7.2 million for the second quarter of 2013. Salaries and benefits expense totaled $4.0 million for the third quarter of 2013 compared to $3.2 million for the same period last year and compared to $4.0 million for the second quarter of 2013. The increase over the third quarter of 2012 was due to higher bonus expense as well as higher staffing levels. Occupancy expense was $833,000 compared to the $743,000 recorded in the same period in 2012 and $805,000 recorded in the second quarter of 2013. The increase over 2012 was due primarily to the new San Francisco branch occupancy costs. Professional services expense was $1.0 million for the third quarter of 2013 compared to $1.0 million for the same quarter of 2012 and $794,000 recorded in the second quarter of 2013. Other real estate owned ("OREO") related and loans held for sale ("LHFS") expenses totaled $73,000 for the third quarter of 2013 (consisting of $159,000 in operating expenses partially offset by net gains on sale of OREO of $86,000). This represented a significant decrease from the $2.6 million recorded in the same quarter last year and an increase from the $(569,000) posted in the second quarter of 2013. Other expenses were $1.5 million in the third quarter of 2013, an increase of $281,000 over the same period in 2012 and a decrease of $365,000 compared to the second quarter of 2013. The variance compared to the same period last year was primarily due to $188,000 of charges related to the depreciation of the Bank's investment in a Low Income Housing Tax Credit fund.

Balance Sheet Summary

Total gross loans and leases (including loans held for sale) at September 30, 2013 were $1.29 billion, an increase of $158.6 million over the total of $1.13 billion as of December 31, 2012. This represents an annualized growth rate of 18.7% for 2013. Comparing balances as of September 30, 2013 to December 31, 2012, Residential real estate loans increased from $152.4 million to $197.1 million; land loans decreased from $27.2 million to $17.1 million; commercial real estate loans increased from $493.1 million to $615.7 million; for-sale housing construction loans decreased from $36.3 million to $22.6 million; other construction loans increased from $38.1 million to $43.4 million and commercial loans increased from $372.5 million to $394.3 million.

Total deposits as of September 30, 2013 were $1.47 billion, an increase of $112.6 million from the $1.36 billion at December 31, 2012. In the early part of January, the Bank elected to reduce DDA deposits which would have required collateral of government securities to maintain. The process of reducing these deposits finalized in the third quarter as evidenced by the stabilization of those balances. As of September 30, 2013 compared to December 31, 2012; noninterest-bearing demand deposits decreased by $108.2 million or 24.2%, interest-bearing demand and savings deposits increased by $85.7 million or 24.7% and time deposits increased by $135.1 million or 24.0%. Total assets were $1.70 billion, a $146.3 million or 9.4% increase from the total of $1.55 billion as of December 31, 2012.

Asset Quality

As of September 30, 2013 total nonaccrual loans (excluding loans held for sale) decreased to $11.3 million compared to $19.0 million as of December 31, 2012. Total net charge-offs for the third quarter of 2013 were $867,000 compared to net charge-offs of $2.5 million for the second quarter of 2013. The preponderance of the charge-offs this quarter were taken against previously established specific reserves associated with classified loans that were resolved this quarter. Based on a detailed analysis of all impaired and classified loans, as well as an analysis of other qualitative factors, the Bank recorded a provision for loan losses of $1.2 million for the third quarter of 2013. This compares to a provision of $1.2 million in the third quarter of 2012 and $250,000 in the second quarter of 2013. The allowance for loan loss at September 30, 2013 was $18.3 million or 1.43% of total loans compared to $20.6 million or 1.84% of total loans at December 31, 2012.

NPA Migration
Non-Performing Assets Migration – Q3 2013

Non Accrual Loans

OREO
Balance, June 30, 2013 $ 15,367 $ 14,513
Additions 64 --
Transfer to OREO -- --
Loans Cured -- --
Sales/Payoffs (2,548) (2,577)
Charge-off (1,543) --
Balance, September 30, 2013 $ 11,340 $ 11,936

The table above excludes loans held for sale and TDR's that are on accrual status. Performing TDR's totaled $404,000 as of September 30, 2013. The $11.3 million in loans held for sale consist of one performing CRE loan for $5.0 million and one nonaccrual loan for $6.3 million.

OREO

Total OREO decreased to $11.9 million compared to $28.3 million as of December 31, 2012. During the third quarter of 2013, the Bank sold five OREO properties with an aggregate book value of $2.6 million.

Asset Quality Table – September 30, 2013
($ in thousands) 30-89 Days Nonaccrual OREO
# $ # $ # $
Land-Residential -- $ -- -- $ -- 3 $ 9,685
Land Commercial -- -- -- -- 1 2,251
Construction:
Residential -- -- 1 3,570 -- --
Commercial -- -- -- -- -- --
RE-Housing for sale -- -- -- -- -- --
CRE-Commercial -- -- 4 4,004 -- --
C&I/Trade Finance 2 83 3 3,766 -- --
Totals 2 $ 83 8 $ 11,340 4 $ 11,936
Asset Quality Table – June 30, 2013
($ in thousands) 30-89 Days Nonaccrual OREO
# $ # $ # $
Land-Residential -- $ -- -- $ -- 8 $ 12,262
Land Commercial -- -- -- -- 1 2,251
Construction:
Residential -- -- 1 4,873 -- --
Commercial -- -- -- -- -- --
RE-Housing for sale -- -- -- -- -- --
CRE-Commercial -- -- 5 6,202 -- --
C&I/Trade Finance 1 50 5 4,292 -- --
Totals 1 $ 50 11 $ 15,367 9 $ 14,513

Capitalization

As of September 30, 2013, the Bank's tier 1 leverage ratio was 11.84% and total risk-based capital ratio was 14.59%. This compares to 11.96% and 14.98% as of December 31, 2012, respectively. Pursuant to the Memorandum of Understanding (MOU) entered into on October 1, 2013, the Bank is required to maintain the following capital ratio:

Ratio Preferred Bank at 9/30/13 MOU Requirement
Tier 1 Leverage Ratio 11.84% 10.0%

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's third quarter 2013 financial results will be held tomorrow, October 23, at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 800-762-8779 (domestic) or 480-629-9645 (international). The passcode for the call is 4643632. There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com. Web participants are encouraged to go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.

Preferred Bank's Chairman and CEO Li Yu, President and COO Wellington Chen, Chief Financial Officer Edward J. Czajka and Chief Credit Officer Louie Couto will be present to discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will remain available in the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 800-406-7325 (domestic) or 303-590-3030 (international) through October 30, 2013; the passcode is 4643632.

About Preferred Bank

Preferred Bank is one of the largest independent commercial banks in California focusing on the Chinese-American market. The bank is chartered by the State of California, and its deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent permitted by law. The Bank conducts its banking business from its main office in Los Angeles, California, and through ten full-service branch banking offices in Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Anaheim, Pico Rivera and San Francisco, California. Preferred Bank offers a broad range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high net worth individuals. Preferred Bank continues to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia. While its business is not solely dependent on the Chinese-American market, it represents an important element of the Bank's operating strategy, especially for its branch network and deposit products and services. Preferred Bank believes it is well positioned to compete effectively with the smaller Chinese-American community banks, the larger commercial banks and other major banks operating in California by offering a high degree of personal service and responsiveness, experienced multi-lingual staff and substantial lending limits.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank's future financial and operating results, the Bank's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government's monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank's results to differ materially from those described in the forward-looking statements can be found in the Bank's 2012 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank's website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements. For additional information about Preferred Bank, please visit the Bank's website at www.preferredbank.com.

Financial Tables to Follow

PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
For the Three Months Ended
September 30, September 30, June 30,
2013 2012 2013
Interest income:
Loans, including fees $ 16,982 $ 13,828 $ 14,686
Investment securities 1,471 1,351 1,552
Fed funds sold 27 14 5
Total interest income 18,480 15,193 16,243
Interest expense:
Interest-bearing demand 542 441 508
Savings 22 18 22
Time certificates 1,371 1,398 1,288
FHLB borrowings 32 -- 3
Total interest expense 1,967 1,857 1,820
Net interest income 16,513 13,336 14,423
Provision for loan losses 1,200 1,200 250
Net interest income after provision for loan losses 15,313 12,136 14,173
Noninterest income:
Fees & service charges on deposit accounts 477 445 570
Trade finance income 133 56 144
BOLI income 83 82 83
Net loss on sale of investment securities (497) -- (358)
Other income 17 84 279
Total noninterest income 213 667 718
Noninterest expense:
Salary and employee benefits 4,017 3,228 3,975
Net occupancy expense 833 743 805
Business development and promotion expense 89 73 83
Professional services 1,015 1,004 794
Office supplies and equipment expense 301 283 301
Total other-than-temporary impairment losses -- 8 95
Portion of loss recognized in other comprehensive income -- -- (92)
Other real estate owned related expense (income) and valuation allowance on LHFS 73 2,623 206
Other 1,462 1,181 1,051
Total noninterest expense 7,790 9,143 7,218
Income before provision for income taxes 7,736 3,660 7,673
Income tax expense 2,705 833 3,404
Net income $ 5,032 $ 2,827 $ 4,269
Income allocated to participating securities (55) (37) (54)
Net income available to common shareholders $ 4,977 $ 2,790 $ 4,215
Income per share available to common shareholders
Basic $ 0.38 $ 0.21 $ 0.32
Diluted $ 0.37 $ 0.21 $ 0.32
Weighted-average common shares outstanding
Basic 13,112,835 13,062,146 13,085,394
Diluted 13,370,223 13,255,778 13,355,058
PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
For the Nine Months Ended
September 30, September 30, Change
2013 2012 %
Interest income:
Loans, including fees $ 46,607 $ 40,896 14.0%
Investment securities 4,573 4,619 -1.0%
Fed funds sold 32 16 103.7%
Total interest income 51,212 45,531 12.5%
Interest expense:
Interest-bearing demand 1,581 1,257 25.8%
Savings 65 55 18.2%
Time certificates 3,935 4,570 -13.9%
FHLB borrowings 35 -- 100.0%
Senior debt -- 94 -100.0%
Total interest expense 5,616 5,976 -6.0%
Net interest income 45,596 39,555 15.3%
Provision for credit losses 1,450 17,500 -91.7%
Net interest income after provision for loan losses 44,146 22,055 100.2%
Noninterest income:
Fees & service charges on deposit accounts 1,594 1,312 21.5%
Trade finance income 484 222 118.1%
BOLI income 247 246 0.3%
Net (loss) gain on sale of investment securities (854) 554 -254.2%
Other income 318 426 -25.3%
Total noninterest income 1,789 2,760 -35.2%
Noninterest expense:
Salary and employee benefits 12,265 9,207 33.2%
Net occupancy expense 2,406 2,237 7.5%
Business development and promotion expense 267 190 40.5%
Professional services 2,698 2,224 21.3%
Office supplies and equipment expense 909 873 4.1%
Total other-than-temporary impairment losses 99 24 312.5%
Portion of loss recognized in other comprehensive income (92) -- -100.0%
Other real estate owned related expense and valuation allowance on LHFS 1,643 7,272 -77.4%
Other 3,655 3,998 -8.6%
Total noninterest expense 23,850 26,025 -8.4%
Income (loss) before provision for income taxes 22,086 (1,210) -1925.3%
Income tax expense (benefit) 8,755 (20,167) -143.4%
Net income $ 13,331 $ 18,957 -29.7%
$ -- $ --
Income allocated to participating securities (161) (262) -38.6%
Net income available to common shareholders $ 13,170 $ 18,695 -29.6%
Income per share available to common shareholders
Basic $ 1.01 $ 1.43 -29.8%
Diluted $ 0.99 $ 1.41 -30.2%
Weighted-average common shares outstanding
Basic 13,089,970 13,045,635 0.3%
Diluted 13,355,157 13,240,612 0.9%
PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
September 30, December 31,
2013 2012
Assets
Cash and due from banks $ 160,405 $ 151,995
Fed funds sold 30,000 --
Cash and cash equivalents 190,405 151,995
Securities held to maturity, at amortized cost -- 979
Securities available-for-sale, at fair value 166,821 210,742
Loans and leases 1,278,964 1,119,553
Less allowance for loan and lease losses (18,344) (20,607)
Less net deferred loan fees (2,429) (2,019)
Net loans and leases 1,258,191 1,096,927
Loans held for sale, at lower of cost or fair value 11,329 12,150
Other real estate owned 11,936 28,280
Customers' liability on acceptances 698 1,961
Bank furniture and fixtures, net 4,290 4,383
Bank-owned life insurance 8,229 8,049
Accrued interest receivable 5,014 5,646
Investment in affordable housing 4,752 --
Federal Home Loan Bank stock 5,296 4,282
Deferred tax assets 28,752 26,975
Income tax receivable 587 542
Other asset 4,869 1,945
Total assets $ 1,701,169 $ 1,554,856
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand $ 338,579 $ 446,734
Interest-bearing demand 409,319 325,018
Savings 23,223 21,844
Time certificates of $250,000 or more 203,579 185,001
Other time certificates 495,437 378,930
Total deposits $ 1,470,137 $ 1,357,527
Acceptances outstanding 698 1,961
Advances from Federal Home Loan Bank 20,000 --
Accrued interest payable 825 968
Other liabilities 9,220 6,562
Total liabilities 1,500,880 1,367,018
Commitments and contingencies
Shareholders' equity:
Preferred stock. Authorized 25,000,000 shares; no issued and outstanding
shares at September 30, 2013 and December 31, 2012
Common stock, no par value. Authorized 20,000,000 shares; issued
and outstanding 13,262,704 and 13,234,608 shares at September 30, 2013 and December 31, 2012, respectively 163,183 162,927
Treasury stock (19,115) (19,115)
Additional paid-in-capital 25,857 24,544
Accumulated income 30,812 17,481
Accumulated other comprehensive income (loss): -- --
Non-credit portion of loss recognized, net of tax of $94 and $133 at September 30, 2013 and December 31, 2012, respectively (131) (184)
Unrealized gain(loss) on securities, available-for-sale, net of tax of $231 and $1,585 at September 30, 2013 and December 31, 2012 (317) 2,185
Total shareholders' equity 200,289 187,838
Total liabilities and shareholders' equity $ 1,701,169 $ 1,554,856
PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
For the Three Months Ended
September 30, June 30, March 31, September 30,
2013 2013 2013 2012
For the period:
Return on average assets 1.20% 1.09% 1.05% 0.79%
Return on average equity 10.11% 8.77% 8.53% 6.31%
Net interest margin (Fully-taxable equivalent) 4.10% 3.85% 4.01% 3.88%
Noninterest expense to average assets 1.86% 1.84% 2.31% 2.55%
Efficiency ratio 46.58% 47.67% 56.98% 65.29%
Net charge-offs (recoveries) to average loans (annualized) 0.28% 0.83% 0.13% 0.57%
Period end:
Tier 1 leverage capital ratio 11.84% 12.18% 12.01% 12.19%
Tier 1 risk-based capital ratio 13.34% 13.51% 13.61% 14.08%
Total risk-based capital ratio 14.58% 14.76% 14.86% 15.33%
Allowances for credit losses to loans and leases at end of period ** 1.43% 1.48% 1.75% 2.03%
Allowance for credit losses to non-performing loans and leases 103.47% 71.79% 74.13% 66.60%
Average balances:
Total loans and leases* $ 1,245,753 $ 1,198,818 $ 1,139,317 $ 1,014,022
Earning assets $ 1,608,366 $ 1,520,024 $ 1,487,826 $ 1,379,218
Total assets $ 1,665,591 $ 1,572,529 $ 1,545,400 $ 1,443,942
Total deposits $ 1,436,385 $ 1,362,295 $ 1,344,983 $ 1,255,464
Period end:
Loans and Leases:
Real estate - Single and multi-family residential $ 197,119 $ 190,037 $ 156,613 $ 147,586
Real estate - Land for housing 9,149 23,079 23,091 22,827
Real estate - Land for income properties 1,560 1,571 1,581 1,608
Real estate - Commercial 610,764 549,907 502,589 476,961
Real estate - For sale housing construction 22,631 25,177 31,341 40,245
Real estate - Other construction 43,413 46,061 39,366 25,547
Commercial and industrial 346,261 328,676 349,615 301,812
Trade finance and other 48,067 49,917 52,924 48,622
Gross loans 1,278,964 1,214,425 1,157,120 1,065,208
Allowance for loan and lease losses (18,344) (18,011) (20,234) (21,601)
Net deferred loan fees (2,429) (2,197) (2,175) (1,695)
Loans excluding loans held for sale 1,258,191 1,194,217 1,134,711 1,041,912
Loans held for sale 11,329 14,685 15,670 9,573
Total loans, net $ 1,269,520 $ 1,208,902 $ 1,150,381 $ 1,051,485
Deposits:
Noninterest-bearing demand $ 338,579 $ 350,641 $ 409,253 $ 406,771
Interest-bearing demand and savings 432,542 400,073 359,476 310,550
Total core deposits 771,121 750,714 768,729 717,321
Time deposits 699,016 681,529 615,270 574,589
Total deposits $ 1,470,137 $ 1,432,243 $ 1,383,999 $ 1,291,910
* Loans held for sale are included
** Loans held for sale are excluded
Preferred Bank
Loan and Credit Quality Information
Allowance For Credit Losses & Loss History
Nine Months Ended Year Ended
September 30, 2013 December 31, 2012
(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period $ 20,607 $ 23,718
Charge-Offs
Commercial & Industrial 3,800 10,525
Mini-perm Real Estate 1,668 3,903
Construction - Residential 2,121 --
Construction - Commercial -- 2,185
Land - Residential -- 592
Land - Commercial -- 6,276
Others -- --
Total Charge-Offs 7,589 23,481
Recoveries
Commercial & Industrial 366 63
Mini-perm Real Estate 1,364 296
Construction - Residential 1,951 2
Construction - Commercial 163 145
Land - Residential 28 57
Land - Commercial 4 7
Total Recoveries 3,876 570
Net Loan Charge-Offs 3,713 22,911
Provision for Credit Losses 1,450 19,800
Balance at End of Period $ 18,344 $ 20,607
Average Loans and Leases* $ 1,195,034 $ 1,018,366
Loans and Leases at end of Period* $ 1,278,964 $ 1,119,553
Net Charge-Offs to Average Loans and Leases 0.42% 2.25%
Allowances for credit losses to loans and leases at end of period * 1.43% 1.75%
* Loans held for sale are excluded

CONTACT: AT THE COMPANY: Edward J. Czajka Executive Vice President Chief Financial Officer (213) 891-1188 AT FINANCIAL PROFILES: Kristen McNally General Information (310) 663-8007 kmcnally@finprofiles.com

Source:Preferred Bank